use the budget from previous one
(109920) . use the performance guide aswell
1 SITXFIN003 Manage Finances within a Budget 2 Allocate funds according to budget and agreed priorities Organisations have very definite financial information needs. Managers and supervisors must know how to collect, collate, present and communicate the relevant, reliable, correct and current data which, in turn, is analysed to produce information for employees and for the organisation. Types of financial records • bank deposit documentation • bank statements • banking summaries • business activity statements • cheque books • credit card transaction statements • invoices • journal entries • labour and wages reports • merchant statements • merchant summaries • transaction reports What is a budget? A budget is the projected incomings and outgoings of a business, or business function, for a set period of time. It can be very simple for a sole proprietor or small business, or extremely complex for larger businesses and corporations. It can relate across the board for the whole business or organisation, or can be broken up into section or departmental budgets, under a master budget or strategic plan. Every business, large or small, public or private, profit oriented or not-for-profit should have a budget of some sort. Budgets enable the organisation and the people working within it to pull together its commitments, plans and projects and all its costs, to gain a good picture of proposed expenditure with expected revenues. They are the tools that are utilised to determine what resources are available at specific times of the year and they are used to allocate those resources and monitor their use. There are two basic types of budget: • Fixed budgeting: Fixed budgeting relies on figures from the past, adjusted nominally to allow for the future. It asks: What did we do in the past? What factors will cause a change? What will we do in the budget period? The budget is then designed to accommodate a predetermined volume of output based on assumptions that costs and income will behave as predicted. 3 • Flexible budgeting: Flexible budgeting allows for adjustments so that figures which depend on other figures are regulated if conditions change. That is, it is designed to allow changes and adjustments to cost levels so they match the level of activity actually attained. It is a budgeting method that recognises differences in the behaviour of fixed and variable costs in relation to fluctuations in output. It is more meaningful to compare the actual expenditure (to measure expenditure against income) with a flexible budget rather than a fixed budget. Types of budgets that organisations regularly prepare. cash budgets cash flow budgets departmental budgets event budgets project budgets purchasing budgets sales budgets wage budgets whole of organisation budgets 4 Budget Preparation Five yearly, annual, six monthly, quarterly, and monthly budgets can all be used. Different budgets and time frames will apply to different purposes, for example special projects, capital expenditures etc. The type of budget and the time frames applied to the budget used by the business will determine the type of information you need to collect and the ways in which it will be used. A micro business may need to plan the cash flow in and out of the business for the coming year. In contrast, a large business or corporation may prepare a variety of budgets, each with a differing time span. Changes to income and expenditure Income and expenditure priorities will change over time. Ideally, budgeting should be a consultative process- a variety of individuals, both internal and external should be involved in the decision-making process. This means that, prior to developing new budgets, it is a good idea to consult with those who will use or be affected by the budget. It is a good idea to determine what the current income and expenditure priorities are and to consider what changes are likely to impact on the coming budgetary period. Although it is possible to use last year's figures--relative to both income and expenditure to inform the budget, the priorities for the new budgeting period might be quite different from those in the previous period. Changes to organisational structure might mean that a budget should make allowance for the recruitment and selection of a number of new staff members. There might be a need for capital expenditure-_for equipment and infrastructure. Then again improved organisational systems might mean that the amount of money budgeted for the hiring of staff and for purchases of consumable supplies is reduced. To prepare budgets and financial reports relevant to your work team, you will need to: » identify the data that needs to be collected » identify the appropriate sources of data » ensure currency, reliability and validity of data » classify and code the data according to accounting and organisational principles » assess the results of data analysis and provide formal or informal reports on the outcomes » keep accurate and secure records of financial transactions 5 New products/ services added to an organisation's portfolio might mean that more expenditure should be allocated to promotion and marketing activities. Each budget period will be different, and priorities must be set according to the need at the time. Prioritisation of needs (in terms of resource allocation) should, however, revolve around customer satisfaction. Complaints and other feedback from customers (including sales, returns and warranty repairs) should be used as a means of determining where and how products/ service improvements should be made. This takes into consideration the fact that everything can be improved, and that improvement should be a continuous process. Customer satisfaction is the marker of business success. If customers are not satisfied, they will take their custom elsewhere. Thus, the main priority when setting budgets is to ensure that resources will be available to meet customer needs. Consulting relevant personnel Operational staff are the people actually doing the job. These people are in the best position to identify problems, constraints or issues relating to current budgets and to advise financial personnel of requirements for future budgets-to help prioritise resource needs for the next period. They should, therefore, be included in consultative processes for collecting the data to inform budgets. Staff who could be consulted include: ➢ Administration (data/word processors, records, clerk) ➢ Customer service (sales representatives, account managers) ➢ Information technology staff (help desk, systems engineers, analysts) ➢ Human resources (payroll, consultants, training facilitators) 6 Other groups for consultation Promote awareness of the importance of budget control One of the best ways to promote awareness of budget controls for the coming period, is, as already considered, to involve the staff who will be affected--who will use the resources to be allocated in the budget--in its design and development. At the very least, staff could be involved in collecting and presenting the data that will be used to develop the budget. This will include performance data and data relating to the costs of the previous budgetary period. They should also be asked to make suggestions about the resources they feel will be needed in the upcoming budget period. They could be asked for suggestions on waste management and methods of reducing costs. They could also be asked to submit proposals for new resources. This means that: » goals reflected in a budget should be achievable and realistic » employees who will be affected by a budget should be consulted when the budget is prepared, and feedback, suggestions or ideas should be both encouraged and given due consideration » employees should be kept up-to-date with regard to monitoring the budget (eg they should receive regular updates on budgetary targets and the efficiency with which resources are being used) » all budget targets must be clearly communicated • The following people or groups might also be consulted: ✓ partners in the business ✓ committees ✓ employees and section managers/supervisors ✓ the accountant ✓ financial planners ✓ government departments 7 Maintain detailed records Good record keeping goes beyond the compliance and statutory requirements of a business. It is the information system of the organisation and the output should be geared to the needs of management and to supporting and enhancing business decisions. Each organisation must have in place secure, user-friendly systems to collect, collate, analyse, record and store information. Staff must have the competencies (training) to use and maintain the systems. Technological applications which support the information and knowledge-base of the organisation should be constantly monitored and updated to ensure currency of accurate information. Records contribute to functionality-new and for the future. Financial and resource allocation records are used to determine what can and should be done now; and what can and should be done in the future. For example: 1. What has been purchased and from whom? 2. Where the best cost advantages were found. 3. Where the best quality supplies were located. 4. How much inventory is required to produce specific products/ services? 5. Is current performance and are operations being maintained within budgetary limits? 6. Is income (revenue from sales) meeting forecast expectations? 7. What budgetary allocations will best serve the organisation's purpose in the future? Records